Manappuram sets eyes on overseas borrowing

Nov 6 board meeting to discuss EMTN programme

KOCHI: Close on the heels of the gold loans market leader Muthoot Finance raising $450 million through its debutant overseas borrowing recently, Manappuram Finance also seems to be readying itself to tap the overseas market through a euro medium term note (EMTN) programme.

Manappuram Finance has informed the stock markets recently that the company will discuss among other things, the plan to establish an EMTN programme at the next board meeting to be held on November 6, 2019.

A euro medium-term note (EMTN) is a medium-term, flexible debt instrument traded and issued outside of the US and Canada. These instruments require fixed payments and are directly issued to the market with maturities less than five years.

The non-banking finance companies (NBFCs) sector is going through one of its toughest phases following the IL&FS debacle that shook the market in 2018 leading to an insidious credit squeeze that has slowly started giving shivers to market players that heavily depend on finances from banks and financial institutions for their on-lending.

Elaborating on the context of its $450 million overseas borrowing, a top official of Muthoot Finance had told that though the pricing at 6.125 per cent may sound a bit high given the additional cost required for the exchange risk hedging, Muthoot has been able to establish an overseas funding window, which would help the company look for favourable pricing in the future.

Banks have always been lavish when it comes to lending to Muthoot and Manappuram. But the scenario could change in the the backdrop of the developments in the past more than a year. As of June 30, 2019, about 65 per cent of Manappuram Finance’s total borrowings to the tune of Rs13,312 crore, has been contributed by funding from banks and financial institutions.

While the commercial paper accounted for 23 per cent of the company’s fund base, NCD’s contribution was only to the tune of 10 per cent of the total funds borrowed. External commercial borrowings also formed part of the kitty at a low 1.8 per cent.

But the picture was much different a year ago. Out of the total borrowings of Rs11,027 crore, the bank finance was only to the extent of 51 per cent with the remaining borrowed funding being contributed by commercial paper at 30.1 per cent and NCDs at 18.3 per cent.

This means Manappuram Finance’s dependence on banks and financial institutions has increased substantially during the current year though banks have generally been a bit hesitant about lending to NBFCs during the past more than a year.

“Going forward, the NBFCs, especially those in the gold loan business that obviously do large volumes, need to diversify their fund sources given the current fluid situation in the market,” said a top banker.

Manappuram has 4351 (includes branches of subsidiary companies) branches across 28 states/UTs with assets under management (AUM) of Rs19,438 crore and a workforce of 25,610.

In December 2007, Manappuram had become the first NBFC in Kerala to attract foreign institutional investment when the celebrated PE fund Sequoia Capital invested Rs70 crore together with Hudson Equity Holdings. Since then, the company has regularly received foreign investment, according to a company document.


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